I signed Equity loan to save City Hall from creditors: Kisia
Posted Sunday, September 9 2012 at 19:50
Roba Duba, who succeeded Mr Kisia, and top council officials were for the second time unable to produce the original contract for the loan agreement or explain its whereabouts.
“When documents are signed, they are protected under fireproof cabinet. I am shocked to hear that there is no such legal document for the loan,” the Local Government PS Karega Mutahi said.
City Hall signed a Sh5 billion loan agreement with Equity Bank to clear debts for which it was paying punitive interest rates of 36 per cent per annum, former Town Clerk Philip Kisia has said
Mr Kisia, who has recently been in the news over the loan that the City Council of Nairobi took early last year, said that contrary to claims that due process was not followed during the procurement of the debt, available documentation tells a different story.
Mr Kisia last Friday gave the Business Daily documents showing that Equity Bank lent City Hall the money at an interest rate of 10 per cent to settle debts owed to a pension fund, the National Social Security Fund (NSSF) and other creditors.
The documents show that City Hall owed LAPTRUST Sh2.3 billion, was indebted to the Local Authorities Provident Fund (LAPFUND) to the tune of Sh878 million, owed the NSSF Sh885 million and another Sh862 million to other creditors.
“At the time we sought the loan, statutory creditors were charging the council 36 per cent interest on the debts,” said Mr Kisia, adding that using a loan that is priced at 10 per cent to settle the debts translated to savings of up to Sh3.7 billion in the long-term.
The loan application and negotiation documents show that City Hall had approached seven commercial banks for credit, but only Co-op Bank and Equity responded.
Co-op Bank had initially agreed to lend the council Sh3 billion at an interest rate of 8.6 per cent using the Local Authorities Transfer Funds (LATF) account as security. But the bank (through a letter dated March 16, 2011) revised the terms, instead offering to disburse the loan at an interest rate of 12 per cent per annum.
The bank arrived at the figure by promising to price the loan at two percentage points below the Central Bank Rate, then standing at 16 per cent and allow a further discount of two percentage points.
Equity Bank agreed to lend the council Sh5 billion, Sh2 billion more than rival Co-op Bank’s offer, at the rate of 10 per cent per annum, making it a better and cheaper deal.
City Hall was later left to negotiate with Equity Bank alone after Co-op Bank terminated its talks, citing the uncertainty surrounding the fate of LATF at the time. Parliament was then debating the devolution laws under the new Constitution and it was not clear whether devolved funds under the old order would survive the transition.
“Co-op Bank tied their approval of the loan to the release of the outstanding LATF disbursements of Sh2.1 billion by the Ministry of Local Government,” said Kisia.
City Hall is currently repaying the Equity Bank loan at the rate of 24 per cent per annum, a development Mr Kisia attributes to the flexible interest terms of the contract that allowed the lender to adjust the rates in line with prevailing market trends.
Equity Bank last moved its interest rate to 24 per cent as the benchmark rate rose to 18 per cent early this year.